Tuesday, January 08, 2013

When the history books are all written, this may turn out to be most darkly comedic episode of our new Gilded Age.

Fresh from paying back a $182 billion bailout, the American International Group Inc. has been running a nationwide advertising campaign with the tagline “Thank you America.”

Behind the scenes, the restored insurance company is weighing whether to tell the government agencies that rescued it during the financial crisis: thanks, but you cheated our shareholders.

The board of A.I.G. will meet on Wednesday to consider joining a $25 billion shareholder lawsuit against the government, court records show. The lawsuit does not argue that government help was not needed. It contends that the onerous nature of the rescue — the taking of what became a 92 percent stake in the company, the deal’s high interest rates and the funneling of billions to the insurer’s Wall Street clients — deprived shareholders of tens of billions of dollars and violated the Fifth Amendment, which prohibits the taking of private property for “public use, without just compensation.”

...

Some government officials are already upset with the company for even seriously entertaining the lawsuit, people briefed on the matter said. The people, who spoke on the condition of anonymity, noted that without the bailout, A.I.G. shareholders would have fared far worse in bankruptcy.

“On the one hand, from a corporate governance perspective, it appears they’re being extra cautious and careful,” said Frank Partnoy, a former banker who is now a professor of law and finance at the University of San Diego School of Law. “On the other hand, it’s a slap in the face to the taxpayer and the government.”

Most of AIG's executives, particularly Joe Cassano and everyone in his division, are extremely fortunate not to be languishing in prison right now. That AIG's creditors are receiving even a dime is also fortuitous.

What's most appalling about all of this is the fact that everyone is behaving as modern capitalism demands. AIG "innovated" financial products to meet shareholder expectations of quarterly profits as the market demanded. When those products went belly up, the government couldn't let AIG go bankrupt without destroying the entire economy. With AIG back on its feet due entirely to government largesse, the faceless, soulless corporation is once again doing its job in attempting to maximize value to its shareholders.

Everything is working exactly as the system is designed to, actually. And it will keep working this way until we overthrow it in favor of a new system that doesn't prioritize short-term profit over long-term stability, corporate persons over real persons, and shareholder return over wage growth.